The AA is planning to raise £200m from shareholders as part of a broader plan to reduce its huge debts and start paying a dividend.

The car breakdown service said the share sale would be accompanied by a £735m refinancing of debt as it seeks to replace a more expensive form of debt taken on before it floated on the stock market in June 2014. Total net debt was almost £3bn at the end of January.

The company intends to pay its first full-year dividend in the current financial year to the end of January 2016.

Announcing the plans, the executive chairman, Bob Mackenzie, said: “The refinancing will help us to deliver a key financial objective set out at the time of IPO [initial public offering] in June: to reduce borrowings and associated interest costs. The refinancing enables us to pay down the most expensive debt we inherited and reduce our senior term facility.

“As a consequence, on completion, our interest payments would be expected to fall by approximately £45m per annum. In addition, some of the restrictions which limit our scope to pay dividends will be removed.”

Revenue at the AA increased 1% to £983.5m in the year to 31 January, while pre-tax profits fell sharply to £61m from £193m a year earlier.

Personal customer numbers fell to 3.8 million from 3.9 million during the year, but business customers increased by 14% to 9.6 million.

Mackenzie said that an accelerated programme of investment into its IT systems and online capability would dent operating profits this year but be beneficial over the medium term.

He added that the AA’s intention was to pay shareholders a full-year dividend totalling at least £50m for this financial year, increasing it thereafter.